On May 1, Foxtrot Co. agreed to sell the assets of its Footwear Division to Albanese Inc. for $80 million. The sale was completed on December 31, 2018. The following additional facts pertain to the transaction:
• The Footwear Division qualifies as a component of the entity according to GAAP
Regarding discontinued operations.
• The book value of Footwear's assets totaled $48 million on the date of the sale.
• Footwear's operating income was a pre-tax loss of $10 million in 2018.
• Foxtrot's income tax rate is 40%.
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In the income statement for the year ended December 31, 2018, Foxtrot Co. would report:

Question

Quizplus · Accepted Answer

According to GAAP, the sale of the Footwear Division qualifies as a discontinued operation, which requires separate presentation in the income statement. Since the division was sold on December 31, 2018, it should be reported as a discontinued operation for the entire year. As a result, income taxes should be separated for continuing and discontinued operations. Therefore, option B is the correct choice.